Below are some FAQs about the new Charity
Law.
The FAQs reflect my own personal views. I’ll be posting revisions of these FAQs
throughout the year as new questions and information arise, new developments
take place, or my views change. Comments, criticisms and suggestions are welcome.
What is the Charity Law and when does it
go into effect?
The
Charity Law does the following: 1) defines the scope of the charity/philanthropy
sector sector in China;
2) regulates the establishment and management of charitable organizations and
charitable trusts and their assets and activities; and 3) regulates the scope
and management of charitable fundraising and donations, including more
requirements for information disclosure by charitable organizations in order to
promote greater transparency in the sector.
The
Charity Law was passed on March 16, 2016 and will go into effect September 1,
2016.
What is new (and not so new) about the
Charity Law?
The
Charity Law is the most comprehensive law on charity that has been passed in
the history of the PRC. It is not exactly the first of its kind though. An
Explanatory Note attached to the first draft of the Charity Law last October
notes the existence of earlier, relevant laws such as the Public Welfare Donation
Law (PWDL) and Trust Law. The PWDL, passed in 1999, defines the scope of who
can make public welfare donations (including overseas donors) and the nonprofit
organizations qualified to receive those donations, the responsibilities of
donors and recipient organizations, and preferential policies for charitable
donations such as tax exemptions.
How is the Charity Law different from
other relevant legislation?
The
Charity Law is a much more comprehensive law than the PWDL. It has a section
(Chapter 4) on Charitable Donations and articles laying the responsibilities of
donors and recipient organizations, and the management and supervision of
charitable organizations and services that are more detailed than what can be
found in the PWDL.
It
also has several new sections. It has an important section (Chapter 2) allowing
for the establishment of a new category of nonprofit, public benefit
organization – the charitable organization. There is also an important section
on Charitable Fundraising (Chapter 3) that broadens the scope for public
fundraising and for the first time regulates online fundraising. After the scandals in the philanthropy sector
in 2011, the Charity Law also includes a section (Chapter 7) on Information
Disclosure to encourage greater transparency and accountability among
charitable organizations in how they carry out their fundraising activities and
how donations are used.
The
Charity Law also addresses new organizational forms touched on in other
legislation such as charitable trusts (Chapter 5). There is a Trust Law that
has existed since 2001 that allows for charitable trusts, but none have been
established so far to my knowledge. In 2015, Jack Ma of Alibaba made news when
he donated around $2.4 billion to set up a charitable trust outside of China,
explaining that the regulatory environment for philanthropy in China was not yet
mature enough.
What is positive about the Charity Law?
1) Language
and intent are always important when we are talking about legislation, and the
language and intent of the Charity Law are for the most part supportive of the
development of charitable organizations and activities, particularly when
compared to drafts of the Overseas NGO Management Law.
2) Compared
with the PWDL, Chapter 1 of the Charity Law somewhat broadens the scope of what
constitutes public welfare or charity. In defining the scope of charitable
activities, it uses language similar to the PWDL, including the last catchall
category of “public benefit activities that comply with this law.” How broad
this last category is will depend on how the central and local governments
implement and enforce this law. Will it include activities such as performance
art events advocating against sexual harassment, or lawsuits defending labor
activists? Only time will tell.
The
Charity Law also broadens the scope of public welfare/charitable organizations
and undertakings to include volunteers, charitable organizations and trusts,
and urban and rural community organizations, but does not explicitly mention
nonprofit public institutions which are a legacy of the planned economy. The
PWDL was adopted in an earlier era when China was making the transition from a
planned to a market economy and public institutions created during the
prereform period were commonplace.
3)
The Charity Law contains none of the corporatist language of previous
regulations which imposed strict limits on freedom of association. In
past regulations, it was common to see clauses that stated that only one social
organization working on a particular issue area was allowed to register within
a given administrative area, or that a social organization registered in an
administrative area could only work within that area, or that a social
organization would not be able to establish branches in other localities.
In
what is the biggest change, the Law does not require charitable organizations to
find a professional supervisory organ to be its sponsor before registering with
the Civil Affairs department. The need to find an official sponsor, and thus be
under the “dual management” of that sponsor and Civil Affairs, was in the past
the biggest obstacle for nonprofits seeking to register. Under the Charity Law (Chapter 2),
organizations can directly register with Civil Affairs.
Unlike
previous regulations, the Law also does not place limits on the number of
organizations per sector, on branch organizations, or on the geographic scope
of an organization’s work.
4)
The Charity Law provides more generous tax incentives, particularly for donors,
although we still need to see how the tax departments promote, implement and
enforce those incentives. One new addition in the final version of the law, for
instance, can be found in Article 80 which states “the amount of charitable donations beyond the amount deductible from
income tax for that year is allowed to be carried over into the calculation of taxable
income over the next three years.”
5) The Charity Law lowers barriers for
charitable organizations by not requiring a minimum level of capital or assets
to register (Article 9), unless those requirements are to be spelled out later
in the implementing regulations.
6)
The Charity Law lowers barriers for public fundraising organizations by
allowing organizations that have been lawfully registered for two years to
apply for public fundraising status (Article 22). In the past, public
fundraising status has been very difficult to obtain and the criteria needed
were never clearly spelled out.
7)
The Charity Law does not require the charitable organizations to go through an
annual inspection process by which they have to submit reports to their
supervisory organs for approval. In previous regulations, nonprofit
organizations needed to submit reports to their professional supervisory organ
for inspection and approval. Under the Charity Law, charitable organizations no
longer need professional supervisory organs and therefore will only be required
to submit an annual work and financial report to the Civil Affairs department
with which they are registered (Article 13).
8) It
encourages the establishment of industry and professional associations of
philanthropic organizations to promote self-regulation in the sector (Article
19).
What areas of the Charity Law could be
improved?
1)
It
could make clearer the relationship between charity and public
welfare/interest/benefit.
2)
It
continues to use vague language in places such as Article 104 which states that charitable
organizations engaging in or funding activities that endanger national security
or the public interest will be investigated and have their registration
revoked.
3)
There
is too much emphasis on formal organizational status which discriminates against
small, grassroots organizations or groups that are unregistered and informal in
nature.
4)
The
Law limits management fees to 10% of that year’s total expenses (Article 60). The
10% across-the-board limit is too low, hampers the ability of organizations to
hire professional staff or rent appropriate venues for their offices, and does
not take into consideration the different needs and expenses of charitable
organizations.
5)
The
Law still maintains a two-tiered system of public fundraising and non public fundraising
organizations in which organizations with public fundraising status are
grandfathered into the system generally because of their close ties with the
government, not because of their management capacity and professionalism.
6)
The
Law does not address the status of fundraising through social media platforms such
as Weibo, or Weixin groups. Does the use of these platforms constitute public
fundraising?
7)
The
Law, in my view, places too much emphasis on transparency in a country where
nonprofit, nongovernmental organizations have in the past been punished for
being transparent about their work. It also has onerous information disclosure
requirements that require staffing and other resources that may be lacking in
smaller organizations, and conflicts with the requirement in Article 60 to keep
management costs under 10 percent of total expenses.
8)
Article
95 calls for Civil Affairs departments to set up a credit record system for charitable
organizations and their responsible persons, yet it does not specify what
criteria would be used to assess the credit of the organization and responsible
persons. This raises concern about how the organization and responsible person
would be evaluated.
